SaaS UK: state of the nation

The last couple of weeks’ traveling combined with interesting discussions the last few days around SaaS and cloud have me thinking about where we’re at. In one conversation, the other party estimates that maybe 20,000 businesses in the UK are using SaaS accounting. I put the figure considerably higher but in the context of the whole market, it is a small fraction. Inevitably in these types of call, attention turned to market condition and ‘what might Sage do?’

In recent days I’ve opined that SAP has validated the market through the general availability of SAP Business ByDesign. It is offered at a price point that is readily affordable for even £1-2 million companies and there are plenty of those around. I’ve also said that it can carpet bomb the country with advertising and so swamp the market with messaging around its offering. All the time, it is adding more validation into the game. Sage is a non-player but that doesn’t mean it is down and out.

The biggest risk for the existing players comes if Sage makes an adventurous choice in its next CEO. Having watched what’s happened at SAP the last 100+ days and been party to some board level discussions, it is clear that SAP is a ‘new’ company. I don’t walk away all dewy eyed but admiring of a company that is at least trying. Having tested the waters with colleagues on the ‘inside,’ that feeling of freshness is tangible. The reason that becomes a market risk is because a fresh injection of blood changes the DNA of a company. When the DNA changes then things that in the past would not have happened magically become possible. Right now, Kashflow for example can piss all over Sage, inflicting all sorts of box cutter wounds pretty much with impunity. Get the right CEO in place and all that changes in a heartbeat. Signs of that are emerging. In recent days, Stuart Lynn has been pimping Sage’s position in the mid-market and to its credit, Sage has put out a fine collection of snappy customer testimonial videos. If it’s getting some of its mojo back then all to the good. The market becomes healthier.

What this means is that over the next year, there will be a race among the SaaS runners and riders to acquire market share before Sage wakes up to what it needs to do in the UK and gets on with the job. The players will need market share because Sage can take that away relatively easily. If it does the right things. By the way – anyone thinking this will involve an acquisition would be wrong. None of the SaaS vendors are for sale and while every company has its price, Sage would be nuts to set a market premium on any of the existing players. It has far better ways to solve its SaaS ‘problem.’

So…how will the players build a defensible position? That’s an interesting point. Right now there is a good amount of churn among the well known but small players as customers figure out the service that’s most likely to work for them. As one correspondent said to me in email:

Believe it or not all I want is QB2002 online. I had settled with a bodge XXX with YYY but the latter is clunky and I think that’s where I stumbled over your blog.

The online accounting fraternity for SMB is so far by experience rubbish. I heartily agree with your view that features for (even small) business’s should be in from day one. Our newco needs an online presence to cope with six locations and HQ. Opening one at a time next week EEK!

OK – mutual back slapping over but the point is well made. In another conversation, a professional said to me that many clients don’t care about accounting. They want it as painless as possible. Professionals on the other hand want something that works seamlessly with what they’re already using in the professional accounts production side of things. Cloud players think that means having everything move to the cloud. There is some justification for that given what dashboards and the like can offer. But that isn’t where professionals are at today. They have to weigh up the advantages of having that capability against what they can get from existing integrated suites that handle compliance further downstream.

All of which opens up the debate about whether the deeply rich and functional stand alone solution can win against a suite play that may not be quite as functionally rich but offer enough by way of integration to overlook some of those features users might desire. Ben Kepes discusses this. The broad argument about suite plays winning makes sense though I think his approach to the argument is less than compelling. That’s probably because of his use of Google as a supporting example where he says:

I believe this contention is supported in part by Google’s recent moves to build it’s application marketplace – Google has always been a proponent of “the web being the platform” but even they are seeing that providing a specific platform with pre integrated datapoints is a no-brainer when selling software to businesses.

He would have been better picking the Zoho example which includes a veritable smorgasbord of applications (which is what people really buy.) Even then, Zoho has plenty of integration work to do of its own.

In the professional domain, what professionals are really after is something that ties what the client has to accounts production to tax and then out to practice management. It is the tax bit that’s most tricky as it requires a huge R&D investment that has a substantial continuing component. However, players that overcome the other moving parts – either through integration (direct or indirect but watch those user interfaces) or by going it alone (ie making a suite play) will have a much more compelling solution to offer than is generally on offer today. That doesn’t take into account what the niche players can achieve. Their position is stronger than the generic cloud based book-keeping cum accounting app because they will appeal to a modestly sized but valuable part of the business landscape.

So far, the small players have had an easy ride in large part because there is no-one dominating the landscape. I am now hearing that more professionals are turning up at seminars and roadshows well equipped to ask the tough questions. The plethora of blogs, help sites, places like this and other material is providing them with the ammunition to come equipped. That’s a solid indication of intention. It doesn’t necessarily shift the needle away from end user influence but it prepares the professional for making informed choices and rendering well reasoned advice.

What of say the next 12 months? Everything to play for and many possible winners. When I first met Xero, they thought that having 30-50,000 users in the UK was plenty enough to create a viable and valuable presence. That’s not an unreasonable position. They’re on the way to that goal. The same will be true for others but it will take time unless the players that are tucking hundreds of accounting partners under their belt can leverage that to quickly onboard clients. Xero also said they thought there is enough in the marketplace to have multiple ‘names.’ That’s also true. Half a dozen players, each with 50K customers is not a bad bit of market share but even then it dims into insignificance when weighed against the millions of businesses out there.

One question that remains unanswered is whether the current crop of players will find ways to upsell services. At the raw average selling price of £20/month, even 50K customers only comes in at £12 million total revenue. Most will need at least £25 million to be considered ‘players’ in the broader sense that provides an opportunity to raise significant public capital for conquering other markets. The players themselves may disagree but then they have to think big or remain fighting for scraps. As always, we’ll see how this onfolds but given all the current moves we see in the market, times can only get more interesting.

Tagged as: Business, google, Sage, SAP Business ByDesign, Software as a service, xero